SRV - Margins improving, volumes lacking

Revenue slightly below estimates but good profitability
SRV’s Q1 results were somewhat in line with expectations, as although revenue came in a bit short at EUR 187.1m (EUR 205.7m/196.0m Evli/Cons.), EBIT amounted to a rather solid EUR 5.2m (EUR 4.4m/3.2m Evli/cons.). The order backlog stood at EUR 1,061m (Q1/20: EUR 1,362m). Order intake was quite weak at EUR 85.4m but on a positive note these included new developer contracted housing units, with start-ups picking up again after the break during Q1-Q3/2020. The most positive news in our view was the continued improvement in the Construction segments EBIT-margins (Q1/21: 3.7%, Q1/20: 3.0%) and the already earlier announced approx. EUR 730m Laakso Joint Hospital alliance project, to which SRV was chosen to develop and build (not yet final).

Favourable margin development, volumes a slight concern
With the lower than expected revenue and rather meager order development we have lowered our 2021 sales estimates near the lower bound of the EUR 900-1,050m sales guidance. Although SRV anticipates improved order intake in Q2 along with the increase in completion of developer contracted housing units later on in 2021 a more conservative approach still appears warranted. On the current profitability track and even if revenue were to decline clearly the upper bound of the profitability guidance is well within reach assuming no major surprises in the Investments-segment.

BUY with a target price of EUR 0.80 (0.64)
Although construction volumes are a slight concern going forward, the main thing for SRV is that margins have continued to develop positively and even better than we had expected. We raise our target price to EUR 0.80 (0.64), BUY-rating intact.